Recession-Hit Paychecks Finally Stabilize, but Poverty and Other Problems Persist

American incomes are no longer free-falling—but they're not rising, either.

The income of the typical U.S. family stabilized last year for the first time since the recession, according to the Census Bureau's latest snapshot of U.S. living standards, released Tuesday. The bottoming-out follows four years of declines that pushed incomes to their lowest levels in nearly two decades.

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The median annual household income—the level at which half are above and half are below—edged down 0.2% in 2012 to an inflation-adjusted $51,017. The change isn't considered statistically significant and compares with much larger declines of 1.5% and 2.6% in 2011 and 2010, respectively. During the economic expansion of the 1990s, incomes rose nearly 15%—from $48,884 in 1993 to an all-time peak of $56,080 in 1999.

The Census report, viewed as a gauge of American prosperity, could mark a turning point for the recovery: It suggests consumers may soon feel the benefits of an improving job market that has seen unemployment drop from a peak of 10% to 7.3% this August. A rally in stocks also has boosted incomes for some Americans, along with rebounding real-estate prices.

A pickup in income growth could give Americans more spending power—and boost the overall recovery.

Still, Tuesday's figures highlight the grim picture for American paychecks over recent years and explain why so many Americans continue to struggle. Incomes remain 8.3% below the $55,627 level of 2007, the year the recession began.

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U.S. businesses still have little incentive to boost wages given that over 11 million Americans are looking for work. Much of the nation's recent job growth has been in lower-paying industries. And the aging of America's population could mean less income growth going forward since the retired often earn less.

"The bleeding has stopped, I suppose, but incomes have yet to increase," said Richard Fry, an economist at Pew Research Center. "Asset prices are rising, but when we look out at Main Street, at what households are getting, there isn't much growth."

Chad and Erica Dryden, of Boise, Idaho, are among those who lost jobs during the economic slowdown and are now picking up the pieces. Mr. Dryden, 35 years old, was laid off by a newspaper in April 2009, about a year after they had a daughter. His wife lost her job that August.

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Mr. Dryden used severance cash to start his own public-relations firm, enlisting his wife as a photographer. To supplement his income, he got a part-time job handling marketing for a local record store. The couple now make around $70,000 a year, $10,000 more than in early 2009.

It hasn't been easy. Patchy income flows from their fledgling business has made them late on mortgage payments a couple of times. The value of the Drydens' home plummeted—and they have $10,000 in other debt.

"We've been cobbling together an existence over the last two years," Mr. Dryden said. "But all in all, we're much happier."

Four years into the recovery, the big picture remains largely unchanged. The gap between America's best-off and worst-off remained wide last year. While incomes for older Americans picked up, median incomes of households headed by Americans under 25 fell 1.6%.

"The jobs that have become available are not as good as the ones that have been lost," said Mark Mather of the Population Reference Bureau, a nonprofit demographic research group.

Another measure of U.S. economic health, the official poverty rate, remained unchanged at 15% of the population, well above the 12.5% level in 2007. The poverty line is $23,492 for a family of four.

Economists say the government's official poverty rate, which was developed in the 1960s, doesn't capture many antipoverty efforts. Unemployment insurance payments are included, for example, but not food stamps—which have been growing rapidly in recent years—and the Earned Income Tax Credit. Government figures also exclude out-of-pocket medical expenses and don't account for where people live.

The report did show glimmers of progress. The share of Americans without health insurance declined slightly to 15.4% from 15.7% in 2011. The number of people with health insurance rose to 263.2 million, from 260.2 million in 2011, thanks to a rise in the share of those covered by government health insurance.

American households in the West saw a 3.2% rise in median incomes, a bright spot around the country.

When it comes to earnings, though, many Americans are struggling.

Tamara Watkins, 27, who sells shoes at a Macy's Inc. department store in Chicago, saw her pay bumped up to $8.50 an hour from $8.25 this year—but she says she's still living from paycheck to paycheck. With her husband recently out of a job, she's worried about paying rent and caring for their 7-year-old daughter. "Everything goes up, except people's wages," she said.

A Macy's spokesman said the company seeks to pay competitive wages.

Corrections & Amplifications Chad and Erica Dryden were late on their mortgage a couple of times as they launched their business. An earlier version of this article incorrectly said they missed payments.

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